Stock market participants seem to love “expectations” versus real numbers when it comes to inflation.

The anxiously anticipated U.S. Consumer Price Index (CPI) report was released Thursday morning, and the data “beat expectations” to send the stock market into a frenzied rally higher.

Underneath the rocketing price action were the CPI numbers which revealed inflation is still inflated at levels not seen in 40 years.

Stock market surges higher with ‘light’ inflation

Inflation numbers “ease up” and were “light,” according to fawning media reports.

This “cooler” inflation report caused the stock market to rocket higher than any rally since 2020.

In the market today, the Nasdaq topped the indexes with a 7.35% gain to 11,114.15 points. The S&P 500 also rallied higher by 5.54% to hit 3,956.37 points.The Dow closed out the surge by spiking to 33,715.37 points to rise 3.7% (adding 1,201.43 points on the day).

This rally was in the face of a CPI report showing inflation jumping by 7.7% in October compared to last year. Inflation numbers are still holding near consumer-crushing levels seen in the early 1980s. October inflation rose 0.4% over the September level.

Inflation was less than expected by economists by 0.2% and the lowest monthly rise this year.

Across the board, equities prices rocketed to new levels Thursday after weeks of a battering pattern of up and down movement.

Consumers still face Fed plans, high inflation

Immediately after the CPI report the conversation among traders turned to how the Federal Reserve (Fed) might react to the “cooling” inflation numbers.

Hawkish monetary policy actions from the Fed over the last few months haven’t stopped record high inflation.

Within the CPI report, core inflation is the measure for how aggressively the Fed continues raising benchmark interest rates. The Fed has staunchly touted for months its aggressive resolve to lower annual core inflation down to 2%.

Annual core inflation in the latest CPI report came in at 0.3% higher in October and 6.3% annually. Both were lower than estimates of 0.5% and 6.5%, respectively. The 6.3% annual inflation rate is three times the acceptable level for the Fed.

The “less than expected” numbers for overall and core inflation boosted the stock market from open to close today.

While traders took advantage of the large, single-day rally, consumers still face crushing inflation numbers with daily expenses, particularly shelter, gasoline, and food. This, too, is part of the Fed plan to curb inflation across the board – higher costs decrease demand and prices.

CPI data shows consumers face higher prices for groceries (up 12.4%), shelter (up 6.9%), energy (up 17.6%), gasoline (up 17.5%), electricity (up 14.1%), new vehicles (up 8.4%), used vehicles (up 2.0%), transportation services (up 15.2%), and medical care services (up 5.4%).

Continued higher consumer costs factor into purchasing power within household budgets, and the less consumers buy the more it affects stock market prices. Profit margins (and stock prices) of retailers and service providers fall as consumers purchase less. That inflation pain then translates to the stock market.

Stock market not ready to fall apart

The wild rally today didn’t catch Simpler’s traders off guard.

TG Watkins, Director of Stocks at Simpler Trading, called for traders to keep an eye on the hourly 200-day simple moving average across the board. A move up after the CPI release, he noted, would be a target point for traders to position potential trade setups as the market revealed its reaction.

TG highlighted signals showing the market was not yet ready to fall apart, but instead indicating a move higher.